Analysts see the debt ceiling deal as a “market opportunity”… How is this?

Analysts were widely optimistic that a deal to raise the US debt ceiling would pass Congress despite the apparent division.

The analysts’ comments come after US President Joe Biden and House Speaker Kevin McCarthy reached an agreement over the weekend to raise the debt ceiling to avoid a first-ever government default.

In the midst of this turmoil, investors may be able to find a “market opportunity”, according to Stephen Pavlik, partner and head of policy at Renaissance Macro Research.

Negotiators agreed to some of the Republicans’ demands, such as stricter work requirements for low-income Americans.

Although an agreement has been reached in principle between the two sides, it will still need congressional approval by both the House of Representatives and the Senate.

For his part, Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, said: “I think it will almost certainly pass.” He also has little doubt that they will not reach an agreement .. “This will be a done deal and the vote is positive on Wednesday.”

He described the suspension of the debt limit until 2025 as a “good decision,” noting that his expectation was to suspend the debt ceiling for only one year.

“I think they decided to jump until after the next election to raise this debt limit, and not have another debate that could distract the American public from the major issues that separate the country,” he said.

Republican or Democratic victory?

However, some Republican lawmakers criticized the deal after the announcement, while other hardliners threatened to scuttle the deal.

Pavlik predicts that McCarthy has the support of a “Republican majority” in the House, “but that majority can vary widely.”

About 75 hawkish Republicans would likely oppose the deal, Pavlik noted, pointing to the ultra-conservative House Freedom Caucus, as well as hawkish Democrats.

As such, with Republicans only taking a narrow 222-213 majority in the House of Representatives, Pavlik said he believes McCarthy will have to rely on moderate Democrats to pass the bill.

“So President Biden will have to provide an additional 75 votes to the caucus to make sure it has enough to pass the resolution in the House of Representatives. If he does, passage through the Senate will likely be certain,” he added.

For Pavlik, the deal was a “Republican victory”.

“The fact that there is a negotiation is in itself a win for the Republicans,” he said, noting that Biden said he would not negotiate a debt limit earlier this year, but he was “forced to.”

He added that the Democratic Party “could have missed this when they took control of Congress at the end of last year, but they chose to delay the decision.”

While the president and global strategist at the “Independent Strategy” company, David Roche, considered this a “democratic victory.”

He expects the deal to pass in the House of Representatives with the support of Democrats although, like Pavlik, he said right-wing Republicans would likely vote against the bill.

Roach said that because the bill allows for borrowing until 2024, it is likely that the state will be able to postpone this problem until it reappears in 2025.

investment opportunities

Pavlik said that the US Treasury will have to “refill its coffers” and if investors are looking at a scenario where the Fed cuts interest rates, “this could really provide an opportunity in the market”, he said.

He believes that investors could consider buying Treasury bonds to “secure some of those higher returns.”

Separately, Siegel noted that US futures indicated slight gains, which he said was because the potential deal “removes a little bit of the uncertainty”.

However, Siegel warned that the main concern ahead for investors would be the “massive tightening” by the Fed.

Siegel said that the problems of banks that will not lead to a crisis of bank deposits, but rather to a tightening of lending standards, especially for small and medium-sized companies.

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